Post on 05-Dec-2015
description
Business ModelManufacturing
Online Retail Cut
Distribution
Services
Accessories
After Sales
Before Sales
LOW marginsLOW revenue
LOW costs
HIGH revenue
• Low hardware margins• No retailer cuts• Flash Sales leading to
low inventory costs• Low marketing costs• Longer production
periods – Moore’s Law driving costs down
• Xiaomi users spend ~2 times the time an Android/iOS user spends on their respective play stores – higher paid service consumption
Cost Drivers Revenue Drivers
2REVENUE ANALYSIS
Business Model
SWOT ANALYSIS
• Service based revenue system• Strong customer ties
• Crowdsourced development• Brand loyalty
• Eliminating intermediary costs• Direct distribution system
• Agile Supply Chain• Zero inventory costs• Ability to react to trends in consumer demands
• Minimal marketing expenditureSTRENGTHS
• Absence of brick and mortar stores• Alienation of non-internet using consumers• Weak after-sales presence
• Un-scalable logistics system• Poor delivery times
• No patentable technology• Intellectual Property Rights issues
• Cultural dependence• MIUI is heavily specific to Chinese demands
• Price sensitive emerging markets in developing countries• Culturally similar markets
• South East Asian countries with significant Chinese population
• Diverse platforms part of the Xiaomi ecosystem• Seamless integration of the services and devices• MiTVs + Mi phones + MiCloud etc
• Working towards high quality perception• Untargeted yet attainable premium segment
OPPORTUNITIES
WEAKNESSES
• Piracy• Cheap rip-offs of the Mi phone.
• Disruptive competitors• Price wars• Data privacy• IPR wars
• Lawsuits over IP theft.
THREATS
3
The Virtuous Cycle
Software
• Weekly development cycles
• Integration of services through apps (MiCloud)
Hardware
• High build quality
• Low margins
Strong Customer
• Crowdsourced development
• Active user forum
COMPARATIVE ADVANTAGE 4
The Chinese Smartphone Market
SETTING THE STAGE
Booming Smartphone Market
Government subsidies enhanced smartphone
penetration
Sales volumes of smartphones in China – 2011 - 2016
6
Xiaomi and ChinaCapitalizing on nationalist sentiment
Strategic partnerships - China Mobile
Tailor-made for the Chinese user
Low upfront payment in a price sensitive country
Open honest relationships with users
Marketed for the youth, the right target audience
Strong leadership by Lei ‘Jobs’ Jun
THE CHINESE STORY 7
Expansion and ChallengesLogisticsChange in operations process required as the company expands and incorporates new products in its range
Expanding to new segmentsCatering to business segment by launching a robust “black-box” like hardware & software package
Brand EquityElaborate marketing campaign to appeal to non tech-savvy consumers
Withdrawal of government subsidies is imminent in ChinaApple likely to be most heavily hit, as price-sensitive users shift to cheaper brands
Threat from disruptive competitorsVivo, another Chinese manufacturer, has beaten Apple’s market share in Q3 ‘14
PiracyCheap rip-offs defaming Xiaomi’s user experience
EXPA
NSI
ON
STR
ATE
GIE
SC
HA
LLEN
GES
8ESTABLISHING DOMINANCE
Smartphone Battleground
CALL FOR LOW-COST
Willingness to pay for smartphones in emerging marketsMarket Driven
Price Wars
Multitude of Low-Cost
Manufacturers
Intensely Competitive
Budget Smartphone
Market
Markets like India already have a wide variety of low-cost options
50% of the Indonesian market is for phones
costing less than $100 – a market even Xiaomi doesn’t cater to
10
ChallengesLow internet connectivity and e-commerce penetration
Higher trust for retail store products; lesser use of e-payment systems
Saturated low-cost phone segment
Absence of inventories causing problems in meeting demand and delays in transportation
Lack of localized content and low customizability
Quality control and after-sales services difficult in e-tail
Security sanctions owing to data centres being located in China
THE DEVELOPING WORLD 11
StrategiesTraditional modes of advertisingFlagship stores to experience productAggressive PR and media campaigns (big-name brand ambassadors, event sponsorship – IPL, ISL, Shaastra etc)
Reorganization of distribution networkSet up inventories in the countries to ensure timely delivery of productsTie-ups with suppliers for production in the country itself
Make localized content available on MiStoreMake local languages, apps, themes available
Diversification of devicesForay into cheaper tablets, wearables, laptops etc.
Tie-ups with carriers to gain easy access into the market
Build on success of flash sales
12TAKING ON THE COMPETITION
Snapshot of a Luxury Market
iDominate
Premium goods consumers
Quality Driven Market
North American markets are the only markets with an upward trend in average
smartphone price
14
ChallengesIP lawsuits due to lack of patents
Poor perception of Chinese products
Low brand equity - Heavy dependence on localized Mi Fans
Price-insensitive users
Restriction on use of servers in China due to data security concerns.
Un-scalable logistics system incurring high shipping costs and import duties
Limited capability of MIUI OS applications to cater to the non-Chinese consumer
TACKLING THE EAGLE 15
A Note on Innovation
Many of the companies that were once great are now gone or on their way out largely because they
stopped innovating. In fact, according to Forbes, the average lifespan of a successful S&P 500 Company
was 67 years in the 1920’s. Today it is 15 years. More companies need to innovate to improve these
declining numbers.
“
”
Companies can choose to compete on the technology front. Xiaomi chose to compete on the business front
They revolutionized the smartphone market by avoiding the competitive hardware market and generating revenue through services
To avoid meeting the same fate as their competitors, they must keep innovating
16THE NEED FOR INNOVATION